The first requirements of the DOL Conflict of Interest – Fiduciary Rule are scheduled to become effective on June 9, just weeks from now. Are you ready?
June 9th is coming up quickly and the Fiduciary Rule is not likely to go away, according to The Wall Street Journal in, “ Obama’s Legacy a Retirement Rule That is Tough to Kill .
Fi360 and I have run a series of surveys of financial intermediaries’ opinions and insights about fiduciary issues since 2010. The latest is underway right now and we invite you to participate.
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After several years of development, in April 2016 the Department of Labor released a rule intended to close loopholes in ERISA that resulted in some financial intermediaries advising retirement plans, participants and IRA account holders without fiduciary obligations. The DOL Conflicts of Interest – Fiduciary Rule became effective last year, with a grace period for firms to prepare for an April 10, 2017 effective date for first provisions, and January 1, 2018 for the rest.
But, the new Administration issued a Memo on February 3, ordering its new DOL to review the former DOL’s Fiduciary Rule. The new DOL issued a proposal to delay the Fiduciary Rule’s effective date, pending the review. There were 178,000 comments against any delay and 15,000 comments for lengthy delays or to effectively kill the Fiduciary Rule.
On April 5th, the new DOL, with input from the Office of Management & Budget,
“ concluded that it would be inappropriate to broadly delay application of the fiduciary definition and Impartial Conduct Standards for an extended period in disregard of its previous findings of ongoing injury to retirement investors. The Fiduciary Rule and PTEs followed an extensive public rulemaking process in which the Department evaluated a large body of academic and empirical work on conflicts of interest, and determined that conflicted advice was causing harm to retirement investors. For all the reasons detailed in the preambles for the Fiduciary Rule and PTEs and in the associated Regulatory Impact Analysis, the Department concluded that much of this harm could be avoided through the imposition of fiduciary status and adherence to basic fiduciary norms, particularly including the Impartial Conduct Standards .” according to the DOL announcement.
Therefore, the new DOL said in its April 5th announcement:
“ the fiduciary definition in the rule (Fiduciary Rule or Rule) published on April 8, 2016, and Impartial Conduct Standards in these exemptions, are applicable on June 9, 2017, while compliance with the remaining conditions in these exemptions, such as requirements to make specific written disclosures and representations of fiduciary compliance in communications with investors, is not required until January 1, 2018 .”
What does this mean to anyone advising retirement plans or participants, as well as with regard to IRA Rollover decisions and/or IRA account holders?
“ Among other conditions, the new exemptions and amendments to previously granted exemptions are generally conditioned on adherence to certain Impartial Conduct Standards: Providing advice in retirement investors' best interest; charging no more than reasonable compensation; and avoiding misleading statements (Impartial Conduct Standards). The Department determined that adherence to these fundamental fiduciary norms helps ensure that investment recommendations are not driven by adviser conflicts, but by the best interest of the retirement investor .”
For those who anticipate using the Best Interest Contract Exemption – BIC – it, too, is slated to be effective on June 9, though with some revision. The more extensive disclosures mandated as a BIC requirement are delayed until Jan 1, 2018, but the Impartial Conduct Standards do apply June 9.
Registered Investment Advisers (RIA firms) are already fiduciaries. They advise retirement plans, participants, IRA investors, and on the critical decision about whether it is actually in the best interest of a retirement investor to roll out of a 401(k) or to stay there, as fiduciaries, under ERISA for retirement plans and investors or the Investment Advisers Act of 1940, for clients' non-retirement assets.
While there still may be additional attempts to derail the Fiduciary Rule, preparing for the June 9th effective date would be prudent.
Are you ready? We invite you to participate in the latest Fi360 Fiduciary Standard Survey, underway right now.
Click here to participate.